Haier Group Competitive Strategy

Topics: Haier, Major appliance, Market Pages: 15 (4768 words) Published: March 27, 2009
The Haier Group

The Company

Haier Group started in 1984 manufacturing and selling refrigerators to the Chinese market. Under the leadership of Zhang Ruimin, Haier’s CEO grew a collective run factory into a global multi-national with over $12 billion USD in global sales. Haier produces a wide range of household electrical appliances, 15,100 varieties of items in 96 product categories, and exports products to over 100 countries including Wal-Mart and Target. In just 20 years, Haier became the 89th of the 2005 World’s 500 Most Influential Brands[i] and first in China’s Top 10 Global Brands[ii]. CEO Zhang Ruimin was also recognized as one of Asia’s Most Powerful People in Business[iii] and the Most Powerful Business Leader in China[iv].

Haier’s holds the leadership position in Chinese home appliance industry with a 21% market share for overall appliances, 34% of white goods, and 14% for small electric appliances. In the world market, Haier has ranked second in global refrigerator production[v] - only one percent less than that of Whirlpool. Haier is the market leader in compact refrigerators and wine coolers in the United States, washing machines in Iran, and air conditioning in Cyprus[vi]. Based on revenue, Haier is ranked fourth from global sales of white goods.

Zhang Ruimin’s ambition is to achieve global recognition for the Haier brand and higher quality. With a trademark valued over $7.5 billion[vii], Haier has set up many overseas production bases, service and sales facilities, procurement networks and international technology alliances and joint ventures with foreign players to better penetrate international markets.

The Industry

World demand for major household appliances (white goods) will reach 367 million units in 2007. The Asia/Pacific, Latin American and Africa/Mideast regions will grow the fastest based on rising urban populations and per capita incomes. Microwaves and dishwashers will lead gains followed by refrigerators, freezers and conventional ovens.

Competition is fierce in the home appliance industry '' even Motorola announced its entry in China’s appliance market. In China, lack of regulations governing product safety and quality has enabled companies with inferior management, technology and services to compete in the industry. Despite low qualities, products can still gain significant market shares through competitive pricing. The barrier to entry is low as technologies and architectures are no longer proprietary.

In the $20.9 billion U.S. market, sales has increased by $3.8 billion since 1999, primarily as a result of an increased number of households and increased activity in the housing market in general. If higher levels of growth are to be achieved, more current owners must be convinced to upgrade from a working appliance. In other words, customers in the U.S. demand more sophisticated products backed by service warranties and back-end support.

Low-end disruption

Haier has invaded the markets of major household appliance manufacturers, including General Electric, Whirlpool, and Maytag, exploiting its cost advantage to seize the low end niche of the incumbents’ product portfolio. Because the margins of these products are low, domestic producers maintain their lock on higher-end household goods and carve the low-end market to Haier. As a result, the company has secure floor space in such leading discount chains as Wal-Mart, Lowe’s, and Best Buy turning its low end products into the category’s best seller.

Haier has pursued a strategy of creating, then dominating, low-end market niches. Having captured the low end market for white goods, I would make two strategic moves to leverage my current position: (1) move upwards to the higher-end white goods such as refrigerators and washing machines and (2) move horizontally to other low-end consumer electronics such as TVs and DVD players.

Let’s take the wine cellar refrigerator as an example. By expanding the current...
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